Guidance Note on Bank Auditors' Reports on Guernsey Financial Services Commission Returns Used for Prudential Purposes

Summary

This is a long-standing GFSC guidance note (originally 2008, reissued November 2021) setting out the Commission's expectations for the annual examination and reporting by bank auditors on the prudential returns (Form BSL/2) that licensed banks submit under section 8(4)(g) of the Banking Supervision (Bailiwick of Guernsey) Law, 2020. It explains what auditors must check and report on, and the timetable and escalation process for their reports.

• Scope of examination: Bank auditors must review the quarterly BSL/2 returns submitted to the Commission's Banking Division and give an opinion on their completeness, accuracy, correct sterling equivalents, compliance with the Commission's current reporting instructions and any bank-specific written rulings, consistency of accounting policies with statutory accounts (for Guernsey subsidiaries), and absence of unexplained large variations in group and large exposures.
• Frequency: Examinations must occur at least annually, with frequency and timing set by the Commission after considering cost, management time and the bank's scale of business.
• Escalation of errors: If auditors identify material errors or omissions not reported by management, they must invite management to notify the Commission and, if management fails to do so within a period specified by the auditor (no more than 7 working days), the auditors must report the matter to the Commission themselves.
• Consolidated returns: Where returns are prepared on a consolidated basis, auditors are expected to extend their examination to the accounting records of relevant group companies.
• Report format and addressee: The auditors' report must be addressed to the directors (Guernsey subsidiary) or senior manager (branch of an overseas institution), include an outline of the work performed, and be submitted to the Commission normally within two months, and not more than three months except in exceptional circumstances, after the Commission's request for the return(s) to be examined.
• Adverse opinions or delays: If auditors expect to give an adverse opinion or that their report will be delayed, they must immediately inform the Commission in writing with reasons and copy the bank; if the bank cannot submit the report within the required period, it must inform the Commission in writing of the reasons.
• Methodology changes: Any proposed change to the methodology a bank uses for calculating risk under BSL/2 modules requires the Commission's pre-approval.

The note applies to all Guernsey-licensed banking institutions (both Guernsey-incorporated subsidiaries and branches of overseas banks) and their appointed bank auditors. It remains in effect from its original 28 November 2008 commencement date, as reissued in 2021.

Key obligations

• Bank auditors must annually examine the bank's BSL/2 prudential returns and report on their completeness, accuracy, sterling equivalent accuracy, compliance with reporting instructions and rulings, consistency of accounting policies, and absence of unexplained large exposure variations.
• Where auditors discover material errors or omissions not already reported, they must prompt management to notify the Commission and, absent action within a period they specify (maximum 7 working days), report the matter to the Commission themselves.
• For consolidated returns, auditors must extend examination to relevant group company records as they see fit.
• The auditors' report must be submitted to the Commission normally within two months, and no more than three months except in exceptional circumstances, after the Commission's request for the return to be examined.
• If an adverse opinion is likely or the report will be delayed, auditors must immediately notify the Commission in writing with reasons and send a copy to the bank; the bank must similarly notify the Commission in writing if it cannot submit the report within the required period.
• Any proposed change to a bank's elected methodology for calculating risk under the BSL/2 modules requires prior written approval from the Commission.

Applies to

Guernsey-licensed banking institutions (subsidiaries), Branches of overseas-incorporated banking institutions, Bank auditors

Deadlines

• within two months (up to three months in exceptional circumstances) after the Commission's request: Bank auditors' report on the specified returns must be submitted to the Commission within this period.
• no longer than 7 working days: Maximum period an auditor may allow management to report a discovered material error or omission to the Commission before the auditor must report it directly.
• 28 November 2008: Effective date of this guidance note (originally issued; reissued November 2021 without a new stated effective date).